Man Group expects to beat market expectations

Hedge fund manager sees earnings up 35% due to strong sales

By

SimonKennedy

LONDON (MarketWatch) -- Man Group, the world's largest publicly-traded hedge fund manager, said Friday that it expects first-half profit on an adjusted measure will beat market expectations, as a downturn in performance didn't turn Japanese investors from buying its funds.

The firm said earnings per share before one-off items are expected to rise around 35% from 23 cents a year ago. Profit before tax for the six months to Sept. 30 is expected to beat the consensus analyst forecast of $691 million, the company added.

Michael Long, an analyst at Keefe, Bruyette & Woods, said the company's figures indicate pretax profit will be around $765 million.

Rupak Ghose, an analyst at Credit Suisse, said he had been expecting earnings per share to rise around 23%.

Shares in Man Group (EMG) climbed 2.7% in London, having gained as much as 6.1% to hit an all-time high of 470.5 pence in earlier trading.

Market speculation in recent weeks has also linked Man Group to a possible bid from an investment bank, with traders mentioning Goldman Sachs
GS, +1.19%
as a potential suitor. See archived story.

The hedge fund manager said net management fee income will rise around 35%, driven by higher sales. Performance fee income will rise roughly 25%.

There is also still the potential for further upside when the results are announced in November, said Chantal Moshal, an analyst at Deutsche Bank.

"Management guidance is usually conservative in the pre-close, and it is not unusual for actual numbers to exceed pre-close guidance," said Moshal.

Sales for the three months ending Sept. 30 were around $5.1 billion. Net sales after redemptions by customers were around $3 billion.

Credit Suisse's Ghose said the sales were close to the record highs Man Group set in the first quarter.

"We had been expecting a significantly greater slowdown of net sales to $1.2 billion given the summer months are seasonally quieter and also our expectation of some impact from the weaker investment returns since May," said Ghose in a note to clients.

"The positive surprise in private client sales was underpinned by an extremely successful launch in Japan, while the company believes that institutional demand for hedge fund products remains extremely strong," Ghose added.

Man Group noted that funds under management are currently estimated to be over $56 billion, with around $33.5 billion attributed to private investors and the rest to institutional clients.

The group added that poor market conditions resulted in a negative investment performance of around $500 million.

Man Group had an exposure to Amaranth Advisors the Greenwich, Conn.-based hedge fund that lost around $6 billion earlier this month when bets on natural gas prices went awry. See archived story.

But the firm did not provide any details on the size of its exposure or any likely impact on results.

The company also said a recent deal helped its brokerage division.

The firm, which bought troubled broker Refco in November, said the acquisition will help boost brokerage net income by more than 40% before one-off items.

Refco hit trouble last year after the revelation that the broker's chief executive was transferring over $400 million between the company and a hedge fund every quarter to hide a personal debt he owed to Refco.

Credit Suisse's Ghose said the brokerage performance was broadly in line with his expectations.

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